Do they have to move out and give up their new home? And does the original occupant get their home back?

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Don't think so - because while the house may be foreclosed on by the wrong bank (i.e. bank that doesn't truly own the mortgage), the home resident is still delinquent on the mortgage and should be foreclosed on by someone.

To be clear, no they would not have to move out and the original owner would not get their house back.

What happens if someone bought a foreclosed home through all the proper channels, and then finds out that the home was fraudulently foreclosed on?

Do they have to move out and give up their new home? And does the original occupant get their home back?

I bet this scenario might play out in the near future.

Any thoughts?

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I can only comment on Florida law. In Florida, a defendant has up a year to seek to set aside a final judgment based upon either newly discovered evidence, fraud, misrepresentation, or other misconduct.

So, yes it is certainly possible for the former homeowner to convince the court that there has been fraud, misrepresentation, or other misconduct, and thereby have the court set aside both the foreclosure sale and the final judgment. If so ordered, the parties would be placed back in the same status as before the final judgment. The former homeowner would own the home and be entitled to possession, the lender would have a mortgage against the property, and the purchaser of the property would get virtually all of his/her money back. The process then would begin anew. The only exception being that if the court found the fraud/misrepresentation egregious enough, it could dismiss the action with prejudice, thus preventing the lender from ever seeking to foreclose its mortgage against the property. That would be an exceptional case.